Information Rules Essay, Research Paper

Information Rules

I. Chapter 1

In this book Carl Shapiro and Hal R. Varian provide an overview of the

competitive playing field of the network economy, and highlight the key economic

rules that govern it. They assert that one does not need a New Economics to

understand the New Economy: the basic economic principles needed to develop

business strategy remain the same. To understand the economics of information

technology one must look at economic issues involving both information and

technology. On the information side, Shapiro and Varian discuss: the cost of

producing information, how to manage intellectual property, information as an

experience good, and the economics of attention. On the technology side, they

introduce: systems competition, lock-in and switching costs, positive feedback,

network externalities, and standards. The chapter ends with a brief overview of

the policy issues concerning the Network Economy.

II. Chapter 2

To begin, it is asserted that information is costly to produce but cheap to

reproduce. The economic rule that parallels this theme states that while fixed

costs of production are large, variable costs of reproduction are small. This

chapter focuses on the special cost structure of information, and outlines

effective ways to sell an information good to identifiable markets. It discusses

how to develop a basic strategy based on what industry one operates in, and

illustrates how the unique characteristics of information markets offer new

opportunities to implement time-tested principles of competitive strategy.

Shapiro and Varian also examine strategies for customizing information by

personalizing your product, and by various means of personalized pricing.

III. Chapter 3

This next chapter examines ways to version information goods in order to make

them appeal to various market segments that will pay different prices for the

different versions. Strategies for versioning are illustrated with examples and

include: delay, user interface, convenience, speed of operation, flexibility of

use, and support. Shapiro and Varian also explore issues such as: how to avoid

common pitfalls in versioning, how to determine the number of versions to offer,

and the value to be gained from product bundling.

IV. Chapter 4

Thirdly, this book explores whether copyright law is hopelessly outdated.

Shapiro and Varian say no, and within this chapter demonstrate why many of its

principles are still valid. What has changed, they say, is that the Internet,

and information technology in general, offer new opportunities and challenges in

applying these principles. Shapiro and Varian review the history of intellectual

property and describe the lessons it has for rights management on the Internet.

They discuss the tension between giving away one?s information to let people

know what one has to offer and charging them for it to recover one?s costs,

and outline strategies managers can use in making this choice.

V. Chapter 5

Then the issue of the lock-in is considered. When the costs of switching from

one brand or technology to another are substantial, users face lock-in. Shapiro

and Varian argue that the friction free economy is a fiction, and that in the

information age, users will be facing more instances of lock-in. Understanding

the costs of switching technologies or brands will be critical to success in

today?s economy. This chapter describes the common patterns that give rise to

switching costs in an attempt to help companies recognize and measure lock-in.

Using company examples, the chapter explains the different kinds of lock-in,

outlines strategies to incorporate proprietary features into a product, and

describes ways to coordinate one?s strategy with that of his or her partners.

VI. Chapter 6

Moreover, this chapter describes how to exploit lock-in when one is offering

an information system, and how to avoid it or at least anticipate it when one is

the buyer. The first part of this chapter is aimed at buyers of information

technology, which includes virtually everyone in today?s economy. To help

prevent mistakes in dealing with lock-in, Shapiro and Varian provide a catalog

of strategies to minimize lock-in and avoid monopoly exploitation. In addition,

Shapiro and Varian show how individuals can make their own switching costs work

in their favor if they get the timing right. The second part of the chapter

outlines competitive strategies for companies that sell their products and

services in markets where customers face significant switching costs, and shows

how these strategies can be put into practice.

VII. Chapter 7

This next chapter goes on to highlight network externalities as a fundamental

economic characteristic of real and virtual networks, which occur when the value

of a product or service to one user depends on how many other users there are.

The pattern such technologies follow results from positive feedback. As the

installed base of users grows, more and more users find the product useful to

adopt. Shapiro and Varian identify four generic strategies for igniting customer

feedback, which follow logically from two basic tradeoffs: whether the company

will base their strategy on improved performance or enhanced compatibility; and

whether the product will be open or proprietary. How these concepts and

strategies work in practice is illustrated through a series of historical case

studies ranging from the early days of the telephone industry to the

introduction of color television.

VIII. Chapter 8

Furthermore, this next chapter describes how firms must function in a

standards-rich environment. It focuses on the openness strategies, which are

fundamentally based on cooperation with allies. Due to the winner take all

nature of network markets; Shapiro and Varian argue that it is especially

important to figure out early on who your allies are, and who your enemies are.

Carl Shapiro and Hal R. Varian systematically explore how companies can

determine critical issues such as: whether they want an open standard; which

allies they need to win and how to most effectively attract them; whether they

can assemble allies to launch their technology successfully while still keeping

some control over how it evolves; whether to fight a standards war or seek an

early truce; and what a company should do if it has a declining market share in

a network industry.

IX. Chapter 9

Subsequently, when a network is launched, the stage of negotiations over

interconnection and standardization is critical. This chapter examines what

happens if these negotiations break down: how to fight a standards war, and how

to get positive feedback working in a company?s favor in a battle against an

incompatible rival technology. Shapiro and Varian explore in detail seven key

assets that determine a company?s ability to successfully wage a standards

war: control over an installed base of users, intellectual property rights,

ability to innovate, first-mover advantages, manufacturing abilities, strength

in complements, and brand name and reputation. In addition, they outline two

marketplace tactics companies will need to employ in pursuing a standards

battle, and discuss how they should best precede in protecting and improving

their positions once they?ve won.

X. Chapter 10

Finally, whether fending off legal challenges or using the antitrust laws to

challenge the conduct of competitors or suppliers, understanding the rules of

the game is important for any manager operating in the Network Economy. In this

chapter, Shapiro and Varian explore government policy, including antitrust

policy and regulation in the telecommunications sector. They underscore why

competitive strategy in the information economy collides with antitrust law in

three primary areas: mergers and acquisitions, cooperative standard setting, and

monopolization, and explore the current legal rules in each of these areas. In

addition, they suggest changes that could be made so that the government

supports, rather than impedes, the growth of the information economy.

Bibliography Page

Shapiro, Carl and Varian, Hal R. Information Rules . Harvard Business School

Press. 1998.